“I’m going to start a new business in North Dakota to benefit from the oil boom going on there.”, said a friend of mine a few years back. 3 years later and he has moved there, more or less, from Seattle.
Without many people noticing (at least in Seattle), there’s been a huge oil and gas boom going on in most of the country.
Cities like Denver, Dallas, Houston, Oklahoma City, and Tulsa, (not to mention Calgary if we consider Canada) are experiencing a boom like they haven’t seen since the early ’80s.
I suspect most of us haven’t felt the benefits of this because we haven’t seen much of a difference in our gas and oil prices (although I did notice much lower heating bills this last Winter).
But it’s real and having profound impacts on not only how we as a country now import (42% in 2012 vs. 57% in 2008) and what it means for alternative energy (e.g. wind and solar) but also any asset holdings.
How does this affect you and your balance sheet?
Well, it serves as a cautionary tale for anyone who went full in with alternative energy with respect to their investments.
Focusing on one sector over another is always (always) a risky proposition. Even if you are employed in that sector you may not have a full picture on what is forecast for that industry and may be caught with some severe losses in your portfolio as a result.
It’s always a good idea to have options and alternatives with respect to any dependency (in this case, energy), but for those that thought they’d make alot of money off alternative energy I propose they visit any area between Texas and Alberta to fully appreciate the shift in this industry.
It is now expected that domestic natural gas reserves are at a 75 year supply and oil reserves are decades out from what we though was available as recently as just a decade ago.
Fracking has had a huge part to play in getting access to these fields, and prompts a whole separate discussion which I will not partake of here.
As a consumer and an investor, these developments hit every one of us. They hit us because we all rely, collectively and individually, on energy sources. We simply cannot live without some forms of energy sources. Even if we bike everywhere we still rely on natural gas or electricity to heat our homes.
Whenever considering a sector for investing in, always consider what’s driving your motivation to invest in it. Do you have unique, deep knowledge about the industry, or, is it more an interest of the heart (e.g. wanting to see alternative energy)? It is incredibly important to know what drives your decision to invest in a sector separate from your other holdings.
And so, while I suspect it’s incredibly beneficial to continue pursuing alternative forms of energy and building the infrastructure to support it, we need to realistically be aware of the fact that with access to natural gas and oil reserves that were unaccessible until recently, alternative energy becomes a highly variable sector to invest in.
(Full Disclosure: I have no individual or sector specific holdings in Energy or Alternative ‘Green’ sectors).